Rockstar’s settlement with Google could mark the beginning of the end of the Nortel NPE
20Nov14

Following the news earlier this week that Rockstar had reached a $188 million settlement with Cisco, it has now emerged that the NPE has also settled with Google. According to a court filing in the Eastern District of Texas, the two sides have agreed to a binding term sheet that “settles, in principle, all matters in controversy between the two parties”. This settlement states that agreement was reached on 12th November, the same day as the agreements the NPE reached with Cisco.

The news comes amid growing uncertainty over Rockstar’s future. The IAM blog understands that at least some of the five companies that own the NPE are now keen to exit their investment. They include Apple, which in 2011 contributed $2.6 billion to the total of $4.5 billion the original Rockstar Bidco paid for the Nortel patents the NPE now manages. It is presumed to own the single largest shareholding as a result.

It is not known if any money has changed hands in the latest settlement, but as part of the resolution of its litigation with Rockstar, Cisco’s CFO revealed on an 11th November call with investors that the company had taken a $188m pre-tax charge. Although that initially looked like a promising deal for the NPE, it now appears that the settlements with Cisco and Google may be part of an attempt to bring Rockstar’s outstanding litigation to a conclusion to facilitate the exit of at least some of the current shareholders.

Rockstar's motion to stay the Google case refers to "the number of additional parties whose claims are concurrently being resolved", which is presumably a reference to the cases it brought against a group of Android manufacturers at the same time as it launched its action against Google in November 2013. In that investor call, Cisco’s CFO Frank Calderoni spoke somewhat cryptically about a resolution“that is constructive for the whole industry”. Now, it seems possible that the resolution referred to could be either Rockstar’s disappearance or a cents on the dollar sale to a third party that will not seek to assert the portfolio – with some people mentioning RPX as a possible player in that scenario.

With a number of the consortium unsure of their continued involvement, the IAM blog also understands that Rockstar’s management has attempted a well-funded buyout. However, this was rejected by some of the shareholders who were keen not to be seen to be profiting from an NPE.

Although, the winding-up of Rockstar or its low price sale might initially be seen as something of an embarrassment for its current shareholders, some context is needed. The market was very different in 2011 when the Nortel auction took place. With Google also in the running for the 4,000 patents, the six companies that comprised Rockstar Bidco – Apple, Ericsson, Blackberry, Microsoft, Sony and EMC (which did not become a Rockstar Consortium owner) – were keen to ensure that the assets did not fall into the hands of the search giant. This would have severely curtailed their opportunities to litigate against Android manufacturers, or to extract licensing revenues from them; not to mention denying them the freedom to operate the portfolio allowed. Monetisation was always very much a secondary consideration.

The Google and Cisco settlements come amid growing signs that the protracted smartphone wars are drawing to an end. Earlier this year Apple and Google announced that they had agreed to settle all patent litigation between them. Apple also reached a similar deal with Samsung, covering all cases outside the US.

Although the filing announcing the settlement between Rockstar and Google was made in the Eastern District of Texas, in October the search giant had scored what appeared to be a significant victory, when it convinced the Federal Circuit that its case asking for the dismissal of the suit that Rockstar had initiated in Marshall in November 2013 should be heard in the Northern District of California with the Texas proceedings being stayed in the meantime. For Apple, at least, that may have been the final straw.